Watch This Space: 3 Phenomena That Will Drive Health Care Innovation in 2019

Back at their desks after the holidays, health care payers, providers and policymakers across the country are staring down their list of 2019 priorities, wondering which they can actually accomplish. Innovation to improve care quality and reduce costs will top many lists, and progress on this front depends, in no small part, on conditions for such innovation in the health care marketplace. Here are three phenomena unfolding there that I’ll be following closely this year to understand what innovators are up against, and how they’re responding.

The legal battle over the Affordable Care Act (ACA). Over 20 million previously uninsured Americans acquired health insurance between 2010 and 2017, many due to the ACA’s premium subsidies, ban on pre-existing condition restrictions, and Medicaid expansion. At the most fundamental level, this coverage expansion has vastly improved one of the most important conditions for a healthy population—access to health care. But it also supports innovation toward better, more affordable care.Coverage expansion means providers get reimbursed for more of the care they deliver to patients who are unable to pay, which strengthens their financial position. It also enables some patients to maintain more continuous health insurance coverage, hence see a doctor more regularly over time. This, in turn, facilitates providers’ development of more effective approaches to management of long-term, chronic disease, which causes untold suffering and costs the U.S. hundreds of billions in direct medical costs.But Texas federal court judge Reed O’Connor’s December 2018 ruling on the case Texas vs. Azar jeopardizes all those benefits. In it he asserts that the entire ACA became invalid when a portion of it—the tax penalty for individuals who do not acquire health insurance as mandated—was eliminated in the Tax Cut and Jobs Act of 2017.

The ACA remains in force, and Timothy Jost argues persuasively in a Commonwealth Fund analysis that the ruling is rooted in faulty logic, and will likely be overturned. Mere uncertainty or confusion about the law’s fate, however, could still undermine its positive impact on innovation. For instance, payers and providers could reduce investment in innovation in anticipation of a reversal in coverage gains, or consumers might abstain from seeking care in the belief they’re no longer covered for it.

So I will not only be waiting for an ultimate decision on the law’s validity, but also watching for industry players to tip their hands regarding possible post-ACA strategies, in order to anticipate the effects of the drama on innovation in care delivery.

The industry shift toward value-based payments. The health care industry’s dominant, fee-for-service payment model reimburses providers for discreet care services delivered, and has been linked to unnecessary and ineffective care. Value-based payment models, by contrast, reimburse providers on the basis of care quality and cost-effectiveness, rather than just volume delivered. Value-based payments are thus an essential driver of innovation toward better, more affordable care.Provider adoption of value-based payments has been accelerating over the last decade. For example, the Healthcare Transformation Task Force (HTTF), a non-profit consortium of leading payers, providers and patient groups, estimates that 47% of its payer and provider members were operating under some form of value-based payment model in 2017, up from 30% in 2015.

Increasingly, payers striving to improve their return on investment in care have been driving the trend. The U.S. Centers for Medicaid and Medicare Services (CMS), accounting for a whopping 37% of all national health expenditures, has been particularly influential on this front. And the agency’s new Medicare Shared Savings Program rules, which compel participating providers to take on financial risk of care much sooner than in previous years, strongly suggests it will continue to support value-based payments under the Trump Administration. However CMS has also cancelled some Obama-era initiatives aiming to drive adoption of value-based payments, such as the mandatory hip fracture and cardiac bundled payment models, hoping to inspire voluntary participation in bundled payment models instead.

The latter may indeed prove effective, but it is too early to tell. So, I’ll be watching closely to see if the agency stays its historic course in favor of value-based payments, and whether its strategy for promoting the models actually impacts their uptake by providers.

Big-name partnerships promising innovative health care solutions. Historically, merger and acquisition activity in health care delivery has mainly involved payers and providers. But 2018 saw the blossoming of M&A and partnerships between traditional health care players and businesses with origins outside the industry, including hook-ups between Aetna/CVS, Humana/Walgreens, and Amazon/JP Morgan/Berkshire Hathaway (led by renowned physician Atul Gawande). Tech giants also advanced into the industry on their own, with Google, IBM, Microsoft and others joining forces to break down barriers to data interoperability in health care.In forging such unions, these companies aim to tackle America’s crisis of care cost and quality, and they have ample profit motive to do so. Given that a number of them have already transformed the way Americans live and spend, they might just have the innovation chops for the job, too. But none of them is much beyond pilot stage with their partnerships, and others have been stubbornly tight-lipped about their plans. I’ll therefore be following closely for any scraps of news they let fall about how they’re approaching the problem, whether they’re seeing success….and whether Dr. Gawande will finally name his enterprise, so that we industry analysts can refer to it in fewer than 33 characters.

Conditions have never been more compelling or, in many respects, favorable, for innovation toward better, more affordable health care in America. But they are constantly changing. So innovators have to closely monitor trends in their operating environment, and bet on the best way to shape their enterprises and strategies to navigate through the inevitable uncertainty. I’ll be keeping a keen eye on the market and their efforts, too, and hoping for the best.

Rebecca Fogg is a senior research fellow at the Clayton Christensen Institute, where she studies business model innovation in health care delivery, including new approaches to population health management and person-centered care.